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Measuring the Invisibles

by Brenda Rarey

Business has traditionally measured the bottom-line in two ways -
the quantity of gross profit and the quantity of net profit. It is clear that an organization’s success depends not only on the quantity of its profits, but a myriad of other factors as well. New measurement systems which uncover true value are inevitable, restoring common sense and fairness to economics.

As little as one-third to one-half of most companies’ stock-market value is accounted for these days by hard assets such as property, plant and equipment. The growing share of measurement lies in intellectual or “invisible” attributes not traditionally viewed as assets at all - such as customer satisfaction, internal business processes, an organ ization’s ability to learn and grow, and the effectiveness of corporate culture. It is within this realm of invisible factors that Spirituality in Business lives.

In his keynote speech at the Third International Conference on Spirituality in Business in Mexico (November 1997), Oscar Motomura, CEO of Amana-Key in Brazil, urged the audience to “make the language of the invisible known.” He suggests that bridging the gap between invisible language and the language of traditional business can help to make concrete the “intangibles of humanity.” Eventually, the financial accounting model will be expanded to incorporate the valuation of a company’s invisible assets - a topic so hot that the Financial Accounting Standards Board has recently formed a committee to study it. Placing values on “invisibles” will require an entirely new set of accounting tools. It may take years to come up with the right indicators, universally apply them, and establish standardized reporting systems.

The financial reporting process is anchored to an accounting model developed centuries ago and today is highly standardized and governed by a set of generally accepted accounting principles, or GAAP, which are widely recognized by lenders, investors, regulators, and others. GAAP standards tell companies how and when to deduct expenses in the current fiscal year or to amortize them over several years. They describe how to assign other costs such as legal, consulting, and overhead - to each widget coming off an assembly line. The key is objectivity, exactness and comparability. Inherent in financial accounting is the language of traditional business - concrete, pragmatic, and measurable. Embracing the language of traditional business assists the transition from invisible to visible, allowing for an opportunity of a huge shift towards enlightenment. “Challenge yourself to help business leaders to take the ‘leap of Spirit,’ built on solid understanding, rather than blind faith,” says Dr. Belinda Gore, Rarey & Associates.

Development of Inside Track
In an effort to capture true business performance, new measurement systems that include a broad range of financial (visible) and nonfinancial (invisible) measures are in demand. In 1990, David Norton and Robert Kaplan, as part of the research arm of the accounting firm KPMG, were involved in a study called “Measuring the Performance of the Organization of the Future.” The study was organized by a concern that existing performance measurement approaches which primarily relied on financial accounting measures, were becoming obsolete and possibly hindering organizations’ abilities to create future growth and value. In 1996, Kaplan & Norton published the now popular book, The Balanced Scorecard through Harvard Business School Press. The Balanced Scorecard measurement system focuses on managing people throughout an organization towards achieving long-term strategic goals by measuring business strategy in four areas: the Financial Perspective, the Customer Perspective, the Internal-Business-Process Perspective, and the Learning and Growth Perspective.

In 1997, Richard Barrett, former Values Coordinator at the World Bank, developed Corporate Transformation Tools - a set of models and instruments that help organizations create values-driven organizational cultures. Out of Barrett’s work, the Balanced Needs Scorecard was created. The Balanced Needs Scorecard goes beyond the Balanced Scorecard by including two additional areas of measurement: Corporate Culture and Society/Community Contribution, bringing the areas of measurement to a comprehensive six.

In January of 1998, Barrett and I recognized the need to link nontraditional measurements to bottom-line results in order to track indicators not typically measured. An instrument which would assess an organization in the six key areas would meet the demands of business to profit from recognition of assets beyond traditional assets. Rarey & Associates colleagues and staff worked with the prototype over the first six months of 1998 to give it a complete field test. In June, we went to print with the first version of InsideTrack at a beta-testing site in Houston, Texas.

InsideTrack was constructed by taking the best practices and measurements of visionary companies in the six key areas and incorporating them into a comprehensive stand-alone assessment tool. A variety of existing scales, measures, and questions, from sources which include Kaplan & Norton’s Balanced Scorecard, Richard Barrett’s Balanced Needs Scorecard, ISO 9000 and ISO 14001 certification processes, and NCS Workforce Development Group’s Campbell Organizational Tools, were referenced. With continued exhaustive research into the domain of holistic business, Rarey & Associates collated and tested the first of many versions of what would come to be known as InsideTrack. Studies are ongoing to determine the impact of InsideTrack’s comprehensive measurement system.

Open Communication
A recent article in The Harvard Business Review reports that more and more companies are using tools to measure their performance in ways that go beyond revenues and profits. “Having a firm handle on such ‘soft’ measures, managers believe, can help people throughout their organizations pinpoint problems, improve processes, and achieve company goals.” Expanding qualification to quantification of Spirituality in Business embraces the efforts of traditional business to concisely capture invisible factors. By speaking the language of business in graphs, numbers and strategy - doors open to possibilities.

Richard Barrett, from a recent Fast Company interview states, “Over the next few years, we’re going to see the rapid development of the practical side of these ideas. It’s going to be huge, this questioning of beliefs and assumptions. This is all going to happen.” Assisting in this important transition is the key to the force of impact Spirituality in Business will have.

Brenda is currently CEO of Rarey & Associates, an organization committed to the improvement of business performance through the use of conscious, comprehensive measurement systems. She is dedicated to the actualization of practices and policies which contribute to long-term, restorative, and responsible business enterprise. Contact via email at [email protected] or fax 281.359.4505

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